623 F.

2d 796

Kathryn R. WALTON and Irmgart Van Daell Heckel,

Plaintiffs-Appellants,
v.
MORGAN STANLEY & CO. INCORPORATED, DefendantAppellee,
and
Olinkraft, Inc., Defendant.
No. 685, Docket 79-7725.

United States Court of Appeals,

Second Circuit.
Argued Jan. 21, 1980.
Decided June 4, 1980.

Sidney B. Silverman, New York City, (Silverman & Harnes, New York
City, of counsel), for plaintiffs-appellants.
Kass, Goodkind, Wechsler & Labaton, New York City, for plaintiffappellant Heckel.
Henry L. King, New York City (Davis, Polk & Wardwell, James W. B.
Benkard, Robert F. Wise, Jr., E. Waide Warner, Jr., New York City, of
counsel), Skadden, Arps, Slate, Meagher & Flom, New York City
(William R. Meagher, William P. Frank, Jeffrey Gleckel, New York City,
of counsel), for defendant-appellee.
Before LUMBARD, OAKES and NEWMAN, Circuit Judges.
LUMBARD, Circuit Judge:

Kathryn R. Walton and Irmgart Van Daell Heckel appeal from an order entered
by Judge Morris Lasker in the District Court for the Southern District of New
York on October 10, 1979. The district court dismissed appellants' complaint,
which they had filed derivatively on behalf of Olinkraft, Inc. and which alleged
that Morgan Stanley & Co., Inc. had breached a fiduciary duty it owed to

Olinkraft, because appellants had not alleged any injury to Olinkraft and
therefore, according to the district court, they lacked standing. We affirm the
district court's order on a different ground: that appellants had failed to state a
claim upon which relief may be granted.1
2

The allegations of appellants' complaint, which we must accept as true in

testing the propriety of the dismissal of the complaint, state the following:

In 1977, Kennecott Copper Corporation engaged Morgan Stanley, the

investment banking and financial advisory concern, to find a company that
Kennecott could acquire. One company Morgan Stanley considered was
Olinkraft, which manufactures paper and other forest products. Olinkraft's
management "cooperated" with Morgan Stanley's Mergers and Acquisitions
Department, "supplied it with highly favorable confidential internal earnings
projections," and "instructed (it) that the Confidential Inside Information was to
be used in connection with the Kennecott Bid and was to be returned to
Olinkraft if such bid did not go through."

Kennecott did not make a bid for Olinkraft, but two other companies did. The
first, Texas Eastern Corporation, announced an offer on July 17, 1978, to
acquire Olinkraft by paying $51 for Olinkraft shares, which had been selling
for approximately $31 to approximately $39.2 After the announcement, Morgan
Stanley's Arbitrage Department purchased, for Morgan Stanley's own account,
149,200 shares of Olinkraft common stock "upon the informed conviction that
a competing offer at a higher price than $51 per share would be made for
Olinkraft stock"; and after these purchases, Morgan Stanley's Mergers and
Acquisitions Department, which knew of the Arbitrage Department's purchases,
disclosed to Johns-Manville, which it was advising financially, the confidential
Olinkraft information "in an effort to induce (Johns-Manville) to make a
substantially higher offer than $51 per share."On September 25, 1978, a JohnsManville subsidiary created for the purpose of acquiring Olinkraft, JM Capital,
announced an offer to pay $57 per Olinkraft share. On October 10, Texas
Eastern announced an improved offer of $60 per Olinkraft share. JohnsManville responded by increasing its offer to $65 per share on October 18.
Texas Eastern then withdrew from the bidding, and Olinkraft and JohnsManville agreed in principle to a merger at $65 per share.

On October 30, appellant Walton demanded that Olinkraft's board of directors

commence proceedings to require Morgan Stanley to account for profits it
made from its purchase of Olinkraft stock. Having been informed that the board
would not act upon her demand, Walton filed her complaint on November 3.

The district court, citing Warth v. Seldin, 442 U.S. 490, 499, 95 S.Ct. 2197,
2205, 45 L.Ed.2d 343 (1975), dismissed the complaint on the ground that the
appellants, not having alleged that Morgan Stanley's actions injured Olinkraft,
had not established standing. The appellants, citing Brophy v. Cities Service
Co., 31 Del.Ch. 241, 70 A.2d 5 (1949), argue that injury is not a prerequisite of
standing in this case because Delaware law, which governs in this diversity
suit,3 makes a breach of fiduciary duty actionable irrespective of injury. The
appellants are correct, for Brophy, which the Delaware courts have consistently
followed, states that a plaintiff need not allege injury to the corporation when
claiming a breach of fiduciary duty and seeking an accounting of profits. 70
A.2d at 8.4

Morgan Stanley has not defended the district court's rationale for dismissing
appellants' complaint. Instead, Morgan Stanley argues that, far from a standing
in a fiduciary relationship to Olinkraft, it represented first Kennecott and then
Johns-Manville "under circumstances that clearly placed it in an arm's length
position regarding Olinkraft," that it therefore breached no duty by disclosing
the Olinkraft information to Johns-Manville, and that, accordingly, the
appellants have failed to state a claim upon which relief may be granted. We
agree.

Because this appeal acquaints us only with the complaint and the appellee's
motion to dismiss, we do not have the benefit of findings of fact about whatever
communication occurred between Olinkraft, the potential target, and Morgan
Stanley, the financial advisor to the potential acquirer: how the communication
proceeded, what understandings were reached, what assumptions or
expectations the trade's practice would justify. But the only logical conclusion
to be drawn from the complaint is that Olinkraft and Morgan Stanley dealt at
arm's length. Morgan Stanley's client was Kennecott, and its task was to obtain
information with which to advise Kennecott. Morgan Stanley was never hired
by Olinkraft, nor was Morgan Stanley's task ever to act on Olinkraft's behalf.
On the other hand, the constituents of Olinkraft's management were Olinkraft's
shareholders, and the duty of its management was to act on the shareholders'
behalf. In short, Morgan Stanley and Olinkraft's management were at all times
responsible to different interests, and they had no relationship to each other
before or other than in the acquisition discussions. Morgan Stanley and
Olinkraft's management must be presumed to have dealt, absent evidence of an
extraordinary relationship, at arm's length.

Appellants contend that Morgan Stanley became a fiduciary of Olinkraft by

virtue of the receipt of the confidential information. However, the fact that the
information was confidential did nothing, in and of itself, to change the

relationship between Morgan Stanley and Olinkraft's management. Put bluntly,

although, according to the complaint, Olinkraft's management placed its
confidence in Morgan Stanley not to disclose the information, Morgan Stanley
owed no duty to observe that confidence. To be sure, in some instances the
management of a potential target, such as Olinkraft, might be required by its
responsibility to the shareholders' interest to cooperate, and even to disclose
confidential information, to a potential acquirer or a financial advisor who, as
did Morgan Stanley, stands at arm's length. But that obligation, while it
burdens management, which might therefore reasonably insist upon an
agreement of confidentiality, does not change the relationship between the
target and the acquirer or its advisor. Appellants' complaint alleges no such
agreement or understanding. 5
10

Given the different constituents and responsibilities of Morgan Stanley and

Olinkraft's management, appellants' reliance on Brophy and on Diamond v.
Oreamuno, 24 N.Y.2d 494, 301 N.Y.S.2d 78, 248 N.E.2d 910 (1969), a New
York case which adopted Brophy's reasoning, is misplaced. Those cases
predicate an accounting of profits without an allegation and showing of injury
upon the fiduciary relationship of the officer, director, or employee to his
corporation. Beyond corporate officers, directors, and in some instances
employees, Delaware law has found a fiduciary relationship between a
corporation's majority shareholders and its minority shareholders, Singer v.
Magnavox Co., Del.Supr., 380 A.2d 969 (1977); but appellants have failed to
cite any case from Delaware or elsewhere, and we have not found any, that
considers one in Morgan Stanley's position to stand in a fiduciary relationship
to one in Olinkraft's.6 Without some indication that the Delaware courts would
accept appellants' theory of liability, we see no reason to extend Brophy beyond
the established notion of a fiduciary, especially since Brophy represents an
exception to the principle that standing requires injury. See Frigitemp Corp. v.
Financial Dynamics Fund, Inc., 524 F.2d 275 (2d Cir. 1975), a diversity case
that applied New York law which we have no reason to believe takes a
narrower view of fiduciary relationships than does Delaware law and that
refused to extend Brophy and Diamond to a situation where the nonpublic
information upon which the defendant traded had been obtained in arm's length
negotiations with the corporation on whose behalf the suit was brought.

11

In sum, the appellants have failed to state a claim upon which relief may be
granted, for the complaint, although it alleges a breach of fiduciary duty, fails
to state facts from which a fiduciary relationship arises under Delaware law
between Olinkraft and Morgan Stanley.
Affirmed. 7

OAKES, Circuit Judge (dissenting):

12

So far as I can see, the majority decides this case on an issue that was never
raised or argued below by the parties. It also does not give leave to the
plaintiffs to amend their complaint. While an appellate court is not
automatically precluded from ruling on an issue never presented to the court
below, see Hormel v. Helvering, 312 U.S. 552, 556, 61 S.Ct. 719, 721, 85 L.Ed.
1037 (1941); Helvering v. Gowran, 302 U.S. 238, 245, 58 S.Ct. 154, 157, 82
L.Ed. 224 (1937), this may only occur when the case is exceptional, to avoid
injustice, Hormel, supra, 312 U.S. at 557, 61 S.Ct. at 158, see 9 C. Wright & A.
Miller, Federal Practice and Procedure 2588, at 749-50 (1971), or where the
proper resolution is beyond any doubt. Singleton v. Wulff, 428 U.S. 106, 121,
96 S.Ct. 2868, 2877, 49 L.Ed.2d 826 (1976). Even if this qualifies as such a
case, which I doubt, it would seem that the losing party should be given "the
opportunity to establish (in the lower court) additional facts which would affect
the result." Gowran, supra, 302 U.S. at 247, 58 S.Ct. at 158. Since this involves
a dismissal of a complaint for failure to state a claim for relief, at the very least
appellants should have the opportunity to amend their complaint, to make it
more specific in the allegations pertaining to the relation between Olinkraft and
Morgan Stanley. Fed.R.Civ.P. 15(a); see 6 C. Wright & A. Miller, supra,
1484, at 417 & n.9 (many cases cited).

13

Even without an amendment, I think the complaint, when construed liberally as

Fed.R.Civ.P. 8(f) requires, see New York State Waterways Association, Inc. v.
Diamond, 469 F.2d 419, 421 (2d Cir. 1972), can be said to allege that Morgan
Stanley was acting in a fiduciary capacity, although the word "fiduciary" is
never used. Cf. Patch v. Stanley Works, 448 F.2d 483, 487 n.9 (2d Cir. 1971)
(complaint not specifically pleading strict liability nevertheless deemed
sufficient to raise that issue).

14

Here Morgan Stanley's Mergers and Acquisitions Department was engaged by

Kennecott Copper Corporation to find a company which Kennecott could
acquire for itself. One to be considered was Olinkraft, which, the complaint
alleges, "cooperated with Mergers and Acquisitions in its work on the
Kennecott Bid and supplied it with highly favorable confidential internal
earnings projections," for an obviously "polite" if not a "friendly" possible
tender offer. Moreover, "Mergers and Acquisitions" was instructed by Olinkraft
that the Confidential Inside Information was to be used in connection with the
Kennecott Bid and was to be returned to Olinkraft if such bid did not go
through." The complaint goes on to allege that Mergers and Acquisitions
nevertheless retained the confidential information after the Kennecott bid was
abandoned, and Morgan Stanley's Arbitrage Department purchased a substantial

block of Olinkraft common stock. Mergers and Acquisitions subsequently

provided the "Confidential Inside Information" to Johns-Manville Corporation
in an effort to induce it to make a higher offer than that already made by
another company, Texas Eastern Corp., for the Olinkraft acquisition. The
complaint concludes that the conduct of Mergers and Acquisitions prohibited
Morgan Stanley from purchasing Olinkraft shares, and that it should not be
allowed to "profit ( ) from a tortious breach of duty" in violation of the common
law.
15

The question presented very briefly is whether the complaint, broadly

construed, states a sufficient relation between Morgan Stanley and Olinkraft so
as to prevent the former from utilizing nonpublic material information obtained
from the latter for its own profit. I think it does. True, Morgan Stanley was
hired and presumably paid by Kennecott for its services, and it was not hired by
Olinkraft. Thus, at least during the initial approaches on Kennecott's behalf
made by Morgan Stanley, it was surely not an agent of, and owed no especial
duty to, Olinkraft or Olinkraft's stockholders. But after Olinkraft began to
cooperate in the deal by turning over the "Confidential Inside Information" as to
favorable earnings prospects, I think the acceptance of such information by
Morgan Stanley, on the confidential terms, along with its understood role as
intermediary in a cooperative takeover, imposed a duty on the investment
banker under well-established common law principles not to use that
information for its own profit. As Professor Scott stated in his treatise, "The
same principles (that prevent a fiduciary from taking personal advantage of
confidential information obtained as such, as against the beneficiary) are
applicable even though the parties are not technically in a fiduciary relation, if
one of them acquires confidential information from the other." 3 A. Scott, The
Law of Trusts 505, at 2428 (1939) (citing Tyler v. Tyler, 54 R.I. 254, 172 A.
820 (1934), where a son was held accountable to his father for profiting from
confidential information furnished by his father). 1

16

While ordinarily this doctrine has been applied in the employee context, where
an employee already had a duty as agent to his employer, e. g., Hunter v. Shell
Oil Co., 198 F.2d 485, 488-89 (5th Cir. 1952) (geologist employed by oil
company), or where an employee acquired secret information relating to a
portion of his employer's business with respect to which he was not an agent, e.
g., Brophy v. Cities Service Co., 31 Del. Ch. 241, 70 A.2d 5, 7-8 (1949),2 I see
no logical reason why it should not extend to the case of a corporate marriagebroker where the parties are cooperative, absent agreements to the contrary.
The fact that Morgan Stanley had no inherent pre-existing duty to Olinkraft
should not prevent us from constructing a fiduciary relationship once the
banker presumably agreed to use the information only for the Kennecott bid.3

Indeed, in Brophy, only after the employee acquired the confidential

information did he become a fiduciary, thereby creating a duty and trust
relationship. Id. at 7. As Judge Learned Hand noted when this court upheld for
a third time the constitutionality of Section 16(b) of the Securities Exchange
Act of 1934, 15 U.S.C. 78p(b) (dealing with a sale by a director or corporate
officer of stock in his company to an outsider based on inside information):
17
When
they sold shares, it could indeed be argued that they were not dealing with a
beneficiary, but with one whom his purchase made a beneficiary. That should not,
however, have obscured the fact that the director or officer assumed a fiduciary
relation to the buyer by the very sale; for it would be a sorry distinction to allow him
to use the advantage of his position to induce the buyer into the position of a
beneficiary, although he was forbidden to do so, once the buyer had become one.
18

Gratz v. Claughton, 187 F.2d 46, 49 (2d Cir.), cert. denied, 341 U.S. 920, 71
S.Ct. 741, 95 L.Ed. 1353 (1951), quoted in Cady, Roberts & Co., 40 S.E.C.
907, 914 n. 23 (1961), in turn quoted in Chiarella v. United States, --- U.S. ----,
----, n. 8, 100 S.Ct. 1108, 1114 n. 8, 63 L.Ed.2d 348 (1980).

19

To my mind, the need to police this sort of use of confidentially revealed

information inheres in the role of the investment banker during
merger/acquisition activity. As was pointed out by Morgan Stanley's own
Robert F. Greenhill in an ABA Symposium, discussing the responsibilities of
the investment banker in the tender offer context:

20 terms of establishing and maintaining communications between both sides, he has

In
an invaluable role. The ability to be recognized as advisor and yet not bind the
principals permits confidential negotiations to progress while the public stance of the
two companies is apparently that of adversaries. Secrecy is vital. Each side in the
dialogue must trust the conduit through which the discussions take place. The
investment banker maintains the dialogue.
21

Greenhill, Structuring an Offer, 32 Bus.Law. 1305, 1309 (1977). In this posture

of a "dialogue," with confidential information changing hands and secrecy vital,
it appears to me improper for the corporate marriage-broker, a potential insider
to both acquiring and target companies, consciously and intentionally to profit
from the dialogue.4 For me, this case is distinguishable from the late Judge
Gurfein's Frigitemp Corp. v. Financial Dynamics Fund, Inc., 524 F.2d 275 (2d
Cir. 1975), which refused to hold an investment-company debenture buyer
accountable for profits realized in connection with the debenture acquisition,
even though it had been previously furnished with confidential information.
There the information was, as the court's opinion pointed out, "required" to be

disclosed to the investment company for the purpose of selling the debenture to
it in an arm's length transaction. Id. at 279. Here, Olinkraft furnished its
projections to Kennecott through Morgan Stanley, only in connection with
Kennecott's contemplated acquisition, and not because it was required to do so
but because it evidently wanted to cooperate. Olinkraft instructed Morgan
Stanley to return the "Confidential Inside Information" if it was not used for the
Kennecott bid. Unlike the defendants in Frigitemp, Morgan Stanley was not a
party to the acquisition and received the information strictly as a result of its
brokering efforts to bring the parties together.
22

Nor is this case like those holding that a commercial bank has no fiduciary duty
to refrain from financing the takeover of a borrower and that the bank is not
precluded from using information from one borrower to evaluate a loan to
another. E. g., Washington Steel Corp. v. TW Corp., 602 F.2d 594, 599-604 (3d
Cir. 1979), discussed in 14 Ga.L.Rev. 116 (1979); American Medicorp, Inc. v.
Continental Illinois National Bank and Trust Co., No. 77 C 3865 (N.D.Ill. Dec.
30, 1977), discussed in Note, Bank Financing of Involuntary Takeovers of
Corporate Customers: A Breach of a Fiduciary Duty?, 53 Notre Dame Law. 827
(1978) (financing not a per se breach of fiduciary duty but misuse of
confidential customer information may be a breach). The investment bank's
role as broker in a friendly takeover and Morgan Stanley's purchase of
Olinkraft stock distinguish this case from the commercial bank situation, even
assuming arguendo the correctness of the bank cases' holdings.

23

This is not to say that plaintiffs below should be entitled to summary judgment;
quite to the contrary, because serious factual issues are presented even reading
the complaint in the most favorable light as I have done above. In the first place
I wonder how the confidential information here favorable earnings projections
could be "returned" as the complaint alleges. Surely the pieces of paper on
which the projections are written could be returned, but one would have to be
very naive to think that an experienced analyst would not be able to retain in his
memory such favorable projections. I would assume that the highly capable
people at Morgan Stanley or any other investment bank have facts and figures
floating around in their heads that would on paper constitute the contents of
many corporate annual reports.

24

Moreover, the precise role of Morgan Stanley in the instant transaction may be
overstated in the complaint. One gathers that Olinkraft had employed the
investment banking firm of Blyth Eastman Dillon & Co., Incorporated (Blyth),
to render an opinion in connection with the merger proposals of both Texas
Eastern and Johns-Manville. The joint proxy statement does not indicate when
Blyth was engaged or whether it was employed in connection with the previous

Kennecott tender offer possibility. I would be less inclined to find a fiduciary

duty on the basis of Morgan Stanley's relation as broker to both parties, and the
receipt of confidential information, were Olinkraft to have had its own broker
on whom it relied for advice in the transaction. Olinkraft's use of its own broker
would lessen the exclusivity and dependence the complaint implicitly alleges in
the instant case. The usual other defenses of immateriality, lack of causation
and the like are, of course, always open.
25

Finally, I do not think that considering the complaint to state a claim for relief
would overly inhibit investment bankers in a takeover situation. While they
surely want to acquire all the information they can, see McAtee, The Role of
the Dealer Manager in the Disclosure Process, 32 Bus.Law. 1331, 1332 (1977),
perhaps they should acquire confidential information only on the express
understanding that it may be utilized in their Arbitrage Department, or that they
may turn it over to other clients. Or perhaps they should erect a "Chinese wall"
between their Mergers and Acquisitions Department and their Arbitrage
Department. While there may be no "general duty between all participants in
market transactions to forgo actions based on material, nonpublic information,"
Chiarella v. United States, supra, 100 S.Ct. at 1117, the duty here arises from a
specific relation and agreement between the parties, at least in my view.

26

I need not belabor the other points which were briefed and argued but are not
addressed in the majority opinion. Since Delaware law requires no allegation of
actual injury to the corporation in a derivative action brought to recover profits
obtained from a breach of fiduciary duty, Brophy v. Cities Service Co., supra,
the conclusion of the court below that plaintiffs lacked standing because no
injury to the corporation was alleged is improper. Morgan Stanley also argues
that plaintiffs lacked standing to bring this suit because they were no longer
shareholders of either Olinkraft or the new Olinkraft as of January 19, 1979.
But a Delaware statute, Del.Code Ann. tit. 8, 261, provides among other
things that any civil action pending "by or against" a corporation prior to a
merger may be continued in the name of the surviving corporation. In that this
action was "pending" at the time Olinkraft was merged into a Johns-Manville
subsidiary, and since appellants do own stock in the parent corporation of the
new Olinkraft, I think there is standing here under Delaware law. Furthermore,
I believe that plaintiffs did comply with the requirements of Fed.R.Civ.P. 23.1,
in that they "allege(d) with particularity" their efforts to have Olinkraft directors
bring the action. They did telegraph the directors, and it was hardly likely that
the directors would sue the investment banker arranging the deal under the
circumstances.

27

With some hesitation, because we are in a rather uncharted area, but with belief

in the fundamentally applicable principles, I respectfully dissent.

We may, of course, affirm the district court judgment upon a different ground
than that on which the district court relied. Helvering v. Gowran, 302 U.S. 238,
245-46, 58 S.Ct. 154, 157-58, 82 L.Ed. 224 (1937); C-Suzanne Beauty Salon,
Ltd. v. General Insurance Co., 574 F.2d 106, 111 n.8 (2d Cir. 1978)

The approximate price range of Olinkraft shares before the Texas Eastern
announcement, although not stated in the complaint, appears in an affidavit
supporting Morgan Stanley's motion to dismiss and is undisputed

There can be no dispute that a federal court exercising diversity jurisdiction

applies the choice-of-law rules of the state in which it sits. Klaxon Co. v.
Stentor Electric Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941);
cf. Day & Zimmermann, Inc. v. Chaloner, 423 U.S. 3, 4, 96 S.Ct. 167, 46
L.Ed.2d 3 (1975). New York law dictates that the law of the state of
incorporation governs an allegation of breach of fiduciary duty owed to a
corporation. Diamond v. Oreamuno, 24 N.Y.2d 494, 301 N.Y.S.2d 78, 248
N.E.2d 910 (1969). Olinkraft is incorporated in Delaware

We need not address the question whether standing in diversity case is a matter
of state or federal law, for the recognition of standing of a shareholder to bring
a derivative suit for the profits made by one who allegedly breached a fiduciary
duty owed to the corporation accords with both federal and Delaware notions of
standing

Nor does the complaint allege that Morgan Stanley induced Olinkraft's
management by deceit or misrepresentation to disclose the information

The doctrine that a duty to disclose or refrain from trading arises from a specific
relationship between two parties and not simply from the fact that some
investors have more information than others is now established in both state
and federal law. See Chiarella v. United States, --- U.S. ----, ----, 100 S.Ct.
1108, 1118, 63 L.Ed.2d 348 (1980)

Morgan Stanley suggests two other grounds upon which the district court's
judgment should be affirmed as well: (1) that appellants, no longer being
shareholders of Olinkraft, lack the capacity to maintain a derivative suit on
Olinkraft's behalf, or (2) that the complaint fails to satisfy Fed.R.Civ.P. 23.1
because the appellants failed to allege "with particularity" their efforts to
demand from Olinkraft's directors the legal action they desired. Because we
affirm on Morgan Stanley's first suggested ground, we need not address these

others
In addition, the dissent suggests that we should grant to appellants the
opportunity to amend their complaint. However, appellants never sought leave
to amend their complaint either in the district court or as an alternative form of
relief in this court after Morgan Stanley raised the issue of the sufficiency of
appellants' complaint. Accordingly, we see no reason to grant such leave sua
sponte. See National Union of Hospital and Health Care Employees v. Carey,
557 F.2d 278, 282 (2d Cir. 1976) (appellants did not request leave to amend
complaint in district court nor disclose in court of appeals what additional
allegations they would make which might lead to a different result; "Absent
some indication as to what appellants might add to their complaint in order to
make it viable . . . we see no reason to grant appellants relief in this Court
which was not requested below.") See generally, 6 C. Wright & A. Miller,
Federal Practice and Procedure 1489, at 448-49.
1

Agency law itself suggests that a party not presently in an agency relationship
may nevertheless be subject to the same duties not to use or reveal confidential
information provided by another party. See Restatement (Second) of Agency
395, Comment d at 222 (1958) ("A person who, in view of a prospective
agency, invites a confidence from or permits the prospective principal to reveal
confidential information to him, is subject to the same duties (as in an agency
relationship).")

The Brophy case finds analogous support in the work of Professor Scott. 70
A.2d at 8 (quoting from 3 A. Scott, The Law of Trusts 505.1, at 2429 (1939)
(discussing employee's use of employer trade secrets))

I extrapolate Morgan Stanley's agreement from the complaint's allegations that

Olinkraft "instructed" the investment banker on the sole use to which the
information could be put. Once Morgan Stanley accepted the information
knowing Olinkraft's terms of transmittal, I would imply its agreement to abide
by such restrictions. In this way, perhaps appellants here would have the
makings of a breach of contract action, although the damages would admittedly
be speculative

It is unnecessary here to consider whether a "Chinese wall" could be erected

between the Arbitrage Department and the Mergers and Acquisitions
Department. That question has yet to be decided by this circuit. Cf. Slade v.
Shearson Hammill & Co., 517 F.2d 398 (2d Cir. 1974) (investment
broker/securities broker; "Chinese wall" question improvidently certified)